Q1 2020 Earnings Call
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Good day, everyone and welcome to the Amerisafe 2021st quarter Earnings Conference call today's call is being recorded.
At this time I'd like a turn the conference over to Catherine Shirley Chief Administrative officer. Please go ahead.
Good morning, welcome to the Amerisafe 2021st quarter Investor call. If you have not received the earnings release. It is available on our website at www Dot Amerisafe Dot com.
This call is being recorded a replay of todays call will be available.
Details on how to access the replay are in the earnings release.
During this call we will be making forward looking statements.
These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.
Actual results may differ materially from the results expressed or implied in the statement.
The underlying assumptions prove to be incorrect or as a result of risks uncertainties and other factors, including the impact of that covered 19 pandemic on the business and operations of the company and our policy holders and the market value of the securities and our investment portfolio.
Other factors that may affect our results are discussed in todays earnings release.
Comments made during this call and in the risk factor section of our form 10-K form 10, Qs and other reports and filings with the Securities and Exchange Commission, we do not undertake any duty to update any forward looking statement.
I will now turn the call over to now for all Amerisafes President and CEO.
Thank you Catherine good morning, everyone. Welcome to my isolation bubble I hope you safe and well.
Our country and the workers compensation market are currently facing health and economic uncertainties today's conversation looks to be much different than our focus on declining rates and competition just too short months ago during our year end earnings call.
What does not different is amerisafes commitment to service throughout this pandemic amerisafes dedicated employees continue to serve our policyholders agents and injured workers war protecting themselves in their household health and safety.
On behalf of myself and the board I would like to thank them for their remarkable dedication in these unprecedented times.
That dedication coupled with amerisafes operational discipline over the last 34 years built a firm foundation of efficient operations with strong liquidity and no debt.
In the current environment, our liquidity affords us the opportunity to maintain our workforce pay our regular dividend and focus on our mission of providing quality insurance services.
Amerisafe in our policyholders are not immune from economic conditions, but I believe amerisafe is well positioned for what lies ahead.
In the first quarter, we produced a combined ratio of 83.5% and an operating return on average equity of 16.1%. We're pleased with this result, particularly considering continued declines in underlying approve loss costs.
Are you will see him for the quarter was a 157 down from 159 in last year's first quarter.
Voluntary policy count was down 2.2% with renewal retention of 92.7%.
As a result premiums for policies written in the quarter were down 5.8%.
Well average approve lost cost for our classes of business were down 6.9%.
For the quarter audit premium and other adjustments increased gross premiums written 3.6 million.
This was a point 9 million decrease from the first quarter of 2019, which when combined with the decrease in written premium resulted in topline being down 6.5% from the first quarter of 2019.
For the states that we operate in stay at home orders impacted the second half as March.
Our agents and policyholders, we're working and Amerisafes operations were uninterrupted throughout the transition to work from home.
Therefore, there was minimal impact of premiums in the first quarter related to the pandemic.
Nearly 95% of our policyholders report payrolls and pay premium to us on a monthly basis in April we received Premier reports based on March payrolls.
The reported premiums for those able reports based on March payrolls were approximately 8% lower than the amount we expected based on the policyholders estimated annual premiums.
That's on an exact science, but it's our best indication of how many of our insured we're working as stay at home orders were enacted.
In our top 10 states most of the larger classes of our businesses, we're not prohibited from working because of state guidance.
We will have a better indication toward the end of May when able payrolls are reported to us.
Roles for Furloughed employees will be reported and a new class code for which we will not collect premium.
Our loss ratio for the quarter was 55.3%, where the current accident year loss ratio of 72.5%.
The current accident year loss estimate was unchanged from accident year 2019.
As with premium we saw minimum at minimal impact to losses related to the Corona virus pandemic in the quarter.
To date, we've had for cobot 19 related claims mostly due to employers reporting out of an abundance of caution.
There is an ongoing debate in the industry and amongst stage regarding the company's ability of Corona virus claims as workers compensation, we agree with the industry experts that the cost of this pandemic, we're not considered and are contemplated in the rates nor in reinsurance agreements.
Yes, healthcare workers and first responders are deemed is covered under workers compensation Amerisafe would have a very small exposure, mostly through our sign Russ policies.
In the near term our overall reported claim counts have declined.
We experienced 13.6 million a favorable development from prior accident years in the quarter that favorable development, primarily resulted from individual claim severities being less than anticipated.
The stress on the health care industry, and the delay of doctors' appointments and procedures could impact ultimate severity of claims depending on the length of stay restrictions.
Our ability to work with claimants employers and health care providers to achieve maximum medical improvement and returned the injured worker to work more essential.
Anything delaying those outcomes, whether medical or return to work related impacts our ability to close claims I'll now turn the call over to Neal to discuss the financial results for the quarter.
Thank you Janell and good morning, everyone.
For the first quarter of 2020, Amerisafe reported net income of 10.8 million or 56 cents per diluted share compared with 19.4 million dollar one per diluted share in last years first quarter.
Operating net income for the first quarter was 16.9 million or 88 cents per share a decrease of three cents from the first quarter of 29 team.
Revenues in the quarter were impacted by 8.8 million in unrealized losses on equity securities.
And therefore decreased to 79.2 million compared with 95.2 million in the first quarter of 29 thing.
Net premiums earned decreased 7% to 79 million when compared to last years first quarter driven by continued declines in state loss cost rates and competition.
Turning to our investment portfolio, our net investment income decreased 3.3% in the first quarter to 7.7 million compared with 8 million in the first quarter of 2019.
The decrease was driven by lower interest rates on fixed income securities, particularly on cash and short term investment securities.
The tax equivalent yield on our investment portfolio was 3.03% at the end of the first quarter.
The pretax yield on the portfolio was 2.70% that the ended the quarter down from 2.82% one year ago.
Realized gains for the portfolio on Securities sold were 1 million compared with negligible gains in the first quarter of 2019.
The investment portfolio is high quality carrying an average double the credit rating with a duration of 3.87 and with 62% of municipal bonds, 19% in corporate bonds.
10% in U.S. treasuries and agencies, 2% in equity securities and 7% in cash and other investments.
We do not invest in the following securities no high yield bonds, no private placements no bank loans or see Olos, no limited partnerships or any other exotic securities.
Within our 21% allocation to corporate bonds, we have no triple B minus securities, 7% and Triple B, 4% and Triple B, plus and the remaining <unk> percent, a minus and above rated securities.
Within our 62% allocation to municipal bonds, we have no triple B securities.
5% or single a bonds, 41% or double the bonds and 16% are rated AAA.
These are all reported as a percentage of the total portfolio.
Approximately 60% of our bond portfolio is comprised of held to maturity securities, which Warner weren't any net unrealized gain position of 23.1 million at quarter end.
These unrealized gains are not reflected in our book value as these bonds are carried at amortized cost.
The company has strong liquidity with 97 million currently in cash and overnight investments, which are held any U.S. treasury money market fund.
Company has 39 million of U.S. Treasury securities that mature in less than 12 months.
73 million of additional U.S. Treasury and agency Securities.
186 million of additional maturities and the interest coupon. So other bonds in the next 12 months. The total up all these 395 million.
During the quarter, we implemented the new accounting standard related to current expected credit losses or Cecil.
Resulted in an after tax charge to retain earnings.
$594000 effective January 1st 2020.
Or three cents per share.
The new credit loss allowance balances at March 31st 2020 included an allowance for reinsurance Recoverables 449000.
Tenant allowance for held to maturity investments of 275000.
So were in line with a range as a potential impacts that we disclosed in our previous SEC filings.
Moving now to operating expenses, our total underwriting and other expenses were 21.3 million in the quarter.
Paired with 20.7 million in the first quarter of 2019.
The increase was largely due to higher insurance related assessments, which increased expenses by 500000 compared to last year's first quarter. When we had some favorable downward adjustments to assessments.
Hi category, the 2021st quarter expenses included 7 million of salaries and benefits.
6.1 million in commissions, and 8.2 million of underwriting and other costs.
As a result of the decline in earned premium as well a slightly higher expenses our expense ratio for the quarter was 26.9% compared with 24.3 person in the first quarter of 29 team.
Our tax rate for the quarter was 18.4%.
<unk>, 18.5% for last years first quarter.
Return on equity for the first quarter was 10% compared to 18.5% for the first quarter of 2019.
Operating or we for the quarter was 16.1%.
In capital management, our company paid its regular quarterly cash dividend of 27 cents per share in the first quarter, which represented an 8% increase over last year's amount.
This quarter the board declared a quarterly cash dividend of 27 cents per share.
Payable on June 26, 2020 to shareholders of record as of June 12, 2020.
And finally, just a couple of other topics.
Book value per share at March 31st 2020 was $22.64 up 1.6% from $22.29 at year end.
Our statutory surplus was 371 million at quarter end up from 360 million at December 31st 2019.
And lastly, we will be filing our form 10-Q with the FCC today after market close.
That concludes my remarks, and we would now like to open up the call for the question and answer session operator.
Thank you.
Ask a question. Please press the star keep followed by the goods one on your touched on Telecom and also make sure. Your mute button, it's turned off to allow your signaled to reach our equipment.
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And we will take our first questions, Dave <unk>, Randy Binner with B. Riley. Please go ahead.
Hi, Good morning, Thanks, I guess for me the the the first year to focus on is.
His claim counts being lower I think you mentioned that can be opening script, but I don't believe that was quantified as much as what you saw with payroll audits.
And potential impacts from categories, you ensure kinda from a top line perspective. So can you didn't mention it for US what are the kind of the the lower loss element of this new economy might be for Amerisafe.
Hi, Good morning, Randy This is Jim now so yes, I did say in my prepared remarks that we're seeing lower claim counts.
Currently in terms of just reported claims coming in the door I. We did have one is what we call severe losses in the quarter and when compared to accident year 19th ended at 17 claims ultimately, but I think in the first quarter is pretty much the same one claim.
Hi, So we are seeing lower claim counts now I think.
But if I recall, if I'm reading your car hearing your question correctly, what how does how will that impact the ultimate cost of our claims you know initially when the stay at home orders can started and work for every one was transitioning from work from home. There was certainly some delays just getting things set up from.
Vendor vendor side, not necessarily Amerisafe employees were working but obviously you know all the different state agencies and working workers' compensation commissions. All the people that we have to deal with were also transitioning from home. So I think there was some delay just maybe that first couple of weeks on but now all of that seems to be online and working.
A you know we had delayed doctor's appointment, obviously for <unk>, Oh, selling compliance to stay at home orders, but that I think things like Telemed is now live and well it, especially with our our clients in like segment.
So we are getting doctors' appointments taken care of and as states start opening up I believe procedures will be I'm, taking care, but that there's been delays from that aspect at this point well that increase the severity of our claims I think it really depends on the lean of a these stay at home orders and of course.
That varies by state [noise].
[noise]. So a couple of follow ups. Thanks for that one I guess is.
You know understanding.
So someone who had the medical visit delayed wouldn't ostensibly they'd be injured before before all this happened, but now right.
You're dealing with kind of lower economic activity. So you know I guess you could have a construction worker, who maybe still is on payroll, but not working as much. You know is is there is there potentially an element to the claim profile like you know analogous to auto insurance, where we there's less.
[noise] vehicles, there's less accidents, you know or work does payroll in workers' comp correlate more closely to how the losses would would be expected to come in.
Yeah. That's it that's a great question. So yeah, certainly if if our ensures our policyholders aren't working and they but they have their workers still on on the payroll I think I mentioned in the prepared remarks, there's a new class code now that they can report those premiums are that that payroll under this class because of that they don't have.
Pay workers compensation premium on that on the flip side to your point that also means we wouldn't have claims related to those employer employees not working.
Okay, and then I guess, the Oh, that's one more than leave it for the other analysts the just within construction and trucking what your largest two classes are those in.
In the states, where you do business had those been deemed essential activities and hugs.
Going and maybe in the case trucking you maybe into some more activity.
Right, Yes, so I'll I'll address the latter first yeah, we would anticipate from a trucking standpoint, just getting goods and I mean, the joke being getting totally paper across the United States that the trucking industry would have been alive and well and perhaps robust through these week. These we said stay at home in isolation.
Okay for construction same.
For at least our top 10 stage and most of our stage when we look through to your point things that were listed as essential businesses in state orders construction at wasn't limited the only thing I can think up top of mind with Pennsylvania, Pennsylvania, what did limit construction, a and had to stay at home stay at home water for construction so in.
The interim that certainly could impact our.
Our insurance, but we believe at this point at a time will tell we believe our insurance I do have the opportunity to work related to coded.
Related stay at home waters, I guess, the larger concern would be if there is a recession or whatever the term. We went up tick is for today. They may have jobs now they may have contracts now what happens eventually as companies are.
I'm watching liquidity do they still have the same capital expenditures will there be some sort of compression nonconstruction.
The flip side and that is we've heard if you listen to any of the presidential or federal a news conference is error or even some of that Congress. A news conference did you hear a lot about infrastructure. So I think there's gonna be things out there to stimulate the economy that should benefit amerisafe policyholders.
Okay. That's great. Thank you.
Our next question comes from Matt her body with A.M.P.
Hi, Thanks, it's Matt at JMP, Good morning, Sal Good morning nil.
Matt I hope, you're well or do we are doing okay. I hope you are too.
Couple of questions. The first is you guys have always prided yourselves, let's say a real kind of.
Hallmark of Amerisafe has been you're pretty close safety inspections kinda the extra mile that you go to make sure you really understand your insureds or potential insured can you talk a little bit about how that process likely has changed in the stay at home environment.
Yes, certainly so I believe and I might get to date, the exact date wrong, but I'll say mid March around March 17th is when we made the call to say you know what it's not say for our employees not say for our customers Incent, our safety professionals to transition from work from home and you think okay. Their safety professional how are they working from home.
And they were Craig creative and a yeah, we've been doing virtual safety visits using any technology that we can to talk to policyholders and potential policy holders help them with safety recommendations and do as many safety visits as we can using virtual means so.
That has not prevented us from issuing quotes a as this as these stay at home isolation that happened that that's still we're still very much open for business and writing policies.
Perfect and then as I think about kind of a follow on that what Randy was asking that last question. There about you know kind of the auto exposure and as payroll jobs in hearing inherent benefit in in trucking. I mean, you guys talked about for a long time across your whole business that the the biggest cause of losses vehicular accidents.
And as traffic down 40%, we're hearing from commercial auto.
Insurers that you know, there's just using a drop of backing there to even though you know trucking mileage might not be down because there's just less cars on the road is is that potentially even if it's a short term a benefit to amerisafe are you seeing any of that in your numbers yet.
Hi, good great question, and we hope that is the case, yeah anything if there's less vehicles on the road that certainly decreases our chances of a motor vehicle accident I don't I think it's probably too early to say so far we've been tracking it based on different state and we haven't seen I mean, it's been I kind of uplift draw.
<unk> by state.
Consistent dropped by say rather than seen fluctuations in different pockets, but that is something that I think is a possibility in certainly welcomes.
Okay. Great last one just you just give a little color on the what you're seeing competitively in the market I'm just even as we kinda entered the year and then it's there has been any change in the last month, the six weeks with co that from from your competitors your competitors that might you know.
Have exposures to other classes, whether that be more of the first responders whether that be you know more retail things like that just have you seen any real change in competitive environment in in your markets or is it just kind of them Lamar status quo.
Yeah. So you know I'll say I'll speak to two different things pretty kind of it and then and now so pre Kobe no. There was really no change in the competition from when we spoke.
At the end of February and.
Still workers' comp was a line that people were pursuing.
Now that were poster into Tobin not post I wish we are post cabbage, a it'd be interesting to see what happens because I think there's a concern over the industry about what's gonna be compensable. So I mean for Amerisafe. We think were somewhat protected in that as we talked about you know the things that you think about that are having tobin related claims.
This point or not things that we typically right with the exception and a small portion of our sign rest book.
But I think it may be enough to deterrent to keep companies are for companies that to allocate capital perhaps to different lines of business. If their multi line carrier earlier in the color were talking about auto so I think autos looking more attractive and I welcome that so yeah.
As as this continues.
One of our hopes would be that multi line carries made to play their capital elsewhere, particularly if they're looking.
You know trying to project ahead at what payrolls could be how you know what payroll could be doing in the economy, where are we headed perhaps they think let's get some being not as tied to a payrolls.
Gotcha, and then just a follow on on the compensable issue and I understand it's pretty small exposure for you got out of my thinking about it right, but if that were to catch on if that worked to kind of be deemed a large portion of states you know I'm going to be covered for those that have that exposure you know what does that would ultimately work its way into into loss cost.
Correct, I mean, there's a delayed impact but.
Yeah, No reason to think that it would be treated otherwise than just how it shows up in the numbers and that work its way into rates.
Yeah, I believe that to be the case.
Great wonderful. Thank you for all the color and best of luck Rusty or.
Thank you Matt.
Matt.
And we'll take the next question for Mark Hughes with Suntrust.
Please go ahead.
Thank you good morning.
Hi, good morning, because I missed the.
I missed the early part of the coal, but did you comment on the.
The any observations on small business you are smaller accounts versus larger accounts, whether you're seeing anymore dislocation and in the context of any.
A broader commentary on cancellations or mid term look premium adjustments have you seen anything or <unk> on that front.
Yeah, So I'll start with the small business aspect of what we write a you know one of the concerns I'd going into a cove it and I was what happens to small businesses. So we were very happy to see the stimulus I'm available to what we would think our insured base would be.
Have access to that funds. So that's a good sign for us even if we we don't collect premium on those particular payrolls anything that keeps them going and viable throughout this. These are this isolationists is good for amerisafe, but as I was saying I think in part at least we believe the industries that we enjoy.
Sure our working so as long as they had a contract or a job when we think that they've been working in most of our states with the exception I mentioned to Pennsylvania, something like construction was not considered quote unquote essential and Pennsylvania. So that that I guess is a downside, but we think the small to midsize business.
There's at least if they were had the ability to work and the cash flows to work on but they they could continue to work throughout this which is I think been a major concern in the country right how to small businesses. If they had to close for a month or two months, how do they survive for our insured base or our policyholders, we we don't.
I think that that is the case, so that that's a good sign.
Asked about payrolls and I guess that Matt had been before you joined the call or whatever the case, maybe I did give a little bit afford looking in terms of what we saw in April. So in April we received monthly reports based on March payrolls and they granted you know I think most of the isolation, it's kind of affected the second half of March.
But it's still gave us some indication and those payrolls were about 8% less than we would've expected, but I have to qualify that was saying expected based on their estimated annual premium obviously, that's not an exact science Ah, but it gives us some indication will have a better indication at the end of May once we've received.
As April payrolls, because I think once we got into April.
Things are pretty settled in terms of who's working who's not working with the exception of like I said, if they had a job and we're currently working on a job and I'm using construction as an example, if they were currently working on a job I'll use the construction to outside her office, if you're in red or they were working.
Even when our employees transition to work from home they were still working on the highway outside and they were completing that job. So I think as long as though jobs, where there they were going to be working and complete them.
Does that answer your question.
But it sure does thank you and then just to refresh mark on the on.
Yeah, Mark Mark Sorry, just let me out on you may have missed this two inch announced remarks, 95% of our policyholders report on a monthly basis.
And so there's not a lot of mid term cancellations or mid term endorsements from that standpoint, and so far retention has been holding in good in the month of March and we haven't seen any uptick in cancellations.
Very helpful. And then refresh me at the dynamic on your construction book, how much is does the new construction versus maintenance repair.
That's sort of thing.
You know, we don't have a breakout on that a lot of our roofing for instance, though is commercial construction, it's not residential construction only about a 5% would be considered residential in terms of roofing. So its commercial restructuring I think in terms of categories of business that I see the.
Most just and this is anecdotally, it's a lot of Oh remodeling of buildings remodeling of schools that type of thing.
<unk> very good at <unk> and I'll, just ask one more I know you've already given the a loss costs multiplier in the quarter.
When 57.
Thank you very much.
Thank you.
And that's a reminder, if he would like to ask a question. Please press.
This time.
And we'll now go to Ron Bobman with capital returns. Please go ahead.
Hi, good morning, and I hope everyone's well the or say family.
Sounds good thank you.
I think two questions.
<unk>.
If I would have looked at the current develops loss ratio.
Whether it be for Amerisafe for or.
Other comp writers for the 2007.
Accident year, where it's currently developed and I compared that.
Two you know a meaningfully worse, let's say currently developed 2010 year.
And I looked at the to change.
And while we're in the midst of this.
Pandemic women, who knows what you know how it's going to develop and with the economy response is gonna be in the severity et cetera.
What are some of the things that come to your mind that.
Make that delta that I'm, pointing to 2007 versus let's say 2010.
A good indicator what make what make what may make a 2019 versus 2000 and I'm, sorry, 2019 versus 2022 and the change that we might see there between those two accident years.
You know sort of Oh, greater delta or a lesser delta what are some sort of the things that come to mind I should think about that type of analysis and trying to look to the past as little bit of a reference guide.
Yeah, we've certainly been doing to that look at the past and say, okay. What happened in the ground if were caught the great recession anymore, but in the great recession compared to what we think maybe make it happen in the next year to two years I when I think back to live in the moment at accident year 2010, I remember.
Thinking Oh this is bad right and.
For us for the industry. We've all felt like we got it wrong returned to work was a huge component of what we do and they weren't jobs to go back to and.
We we increased our loss ratio I think we had one quarter of a very small amount of adverse development, which is very atypical for us I, but it happens and now sitting here today looking back at accident year 2010 at least for Amerisafe, an i. I play.
I should know the industry numbers I'll talk my head, but at least for Amerisafe when I look bad it wasn't as bad as we thought it was at the time in terms of accident year 2010, but that period that you're talking about 2007 2008 2009 to 2010, what is different I think is the underlying rates. So.
We were at a higher rate.
I think the industry as a whole I know amerisafe was at a higher rate premium per hundred dollars of payroll. Then then we are now so I think the rate environment was a little bit different.
I think the frequency and severity of accidents was also quite a bit different but long term trend has trended down quite a bit. Since then is workplaces become safer and there's been more emphasis by employers on say for workplaces.
Okay.
Thanks, and I have another sort of more general question and I know you know your your specialists, you're you've been in it and you will continue to be in it for the long haul and of course, you look to support your insureds.
As best you know as Mr. reasonably cat I'm, just sort of thinking when you were in this environment that we're in right now were to be looking at in quoting or or at least being asked to quote on a new piece of business.
Given all the financial.
Distress.
The bar a hell of a lot higher now for you to even candidly consider I'm quoting.
And binding a new piece of business.
Given the financial distress that the insured.
It's presumably sort of undergoing and the uncertainty as to whether that'll make it out the other end and what the future holds.
Yeah, you know it's interesting I think part of the answer to that question is how long this last in terms of.
This isolation stay at home orders people running out of jobs to our contracts to complete.
So the least of it I said certainly matters as we got into April you know, we were still getting new business submissions spins agents had been working those months in advance.
Longer agents are isolated the less new business, that's gonna be presented to us because they're gonna have less new business right because at that point, if they're going to be looking through their books of business trying to figure out okay. What what's out there that I can resubmit, because they're not prospecting when they're at home.
So it'd be interesting to see how much new business <unk>, we have I think everyone's going to try to protect the renewal business I think insureds are gonna be more I hope insurers are more inclined to stay with their renewals, where they are renewing company simply because to your point with all the other moving pieces out there.
I think one thing one last thing to worry about as well what I need to do about my comp care my comp coverage <unk>.
Okay.
Thank you very much and good luck and hope everyone stays well fine.
Thanks.
Thanks.
I would now like to turn the call back over to now Frost, President and CEO for concluding remarks.
Thank you for joining US today. This is a unique time in our country in the insurance market and then our personal lives.
D. today and this pandemic passes we learn more we adjust and we adapt at Amerisafe, we found new creative ways to stay connected and serve our clients from isolation for me personally I've put more in the last month and I have in my lifetime I'm sure My family what degree Amerisafe is doing a better Dod job at adapting.
Stay well.
[laughter].
And that does conclude our conference for today I'd like to thank everyone for your participation and you may now disconnect.
[music].